Suntrust Presses Bid For Wachovia

A North Carolina Judge Gave First Union The First Shot At A Merger With Wachovia.

July 21, 2001|By Susan Strother Clarke, Sentinel Staff Writer

SunTrust Banks wants Wachovia Corp. so badly, it has spent $15 million since May in a proxy fight that includes newspaper ads, letters to shareholders and executives crisscrossing the country for meetings with investors.

It has no intention of backing away from its hostile bid, despite a legal setback.

A state judge in Greensboro, N.C., on Friday rejected SunTrust's attempt to block Wachovia's merger with another suitor, First Union Corp., which made a bid for Wachovia in April.

Yet the ruling by Business Court Judge Ben Tennille also helped SunTrust by rejecting a clause in the First Union merger agreement. The clause would have prevented Wachovia from merging with another bank for several months if the First Union deal falls through.

Now, if Wachovia shareholders reject First Union's offer at their meeting Aug. 3 -- which some analysts say is unlikely -- SunTrust can immediately work on its deal.

"Our next move is to continue to press our case with Wachovia shareholders, whom we believe have even more reason [now] to vote against the First Union transaction," said Barry Koling, SunTrust's director of corporate communications.

After the judge's ruling, First Union remained confident its offer will prevail.

"This is a major victory for First Union and Wachovia. We couldn't be happier," said Mark Treanor, executive vice president and general counsel for First Union.

Both Atlanta-based SunTrust and First Union, which is based in Charlotte, N.C., want Wachovia, which is the nation's 15th-largest bank. Based in Winston-Salem, N.C., Wachovia has a strong presence in North Carolina -- a potentially lucrative market for SunTrust -- and assets of $74.8 billion.

And the company is profitable: Despite the sluggish economy, Wachovia's second-quarter income rose 5.8 percent to $245.1 million.

UNINVITED SUITOR

Wachovia and SunTrust discussed a merger late last year, but the deal fell apart. A month after First Union made its offer in April, SunTrust came back to the table -- uninvited -- besting the First Union bid with its own buyout plan.

Based on its stock price, SunTrust's bid for Wachovia is worth $14.6 billion, while First Union's is worth $14.4 billion.

Wachovia directors rejected SunTrust's bid. In its lawsuit filed in late May, SunTrust urged the court to block the First Union-Wachovia merger and invalidate a breakup provision. That provision allows First Union to acquire a 19.9 percent stake in Wachovia, worth as much as $780 million, if its deal were to fall through. The court refused to kill the measure.

The future of Wachovia now rests with its stockholders.

ANGRY AD CAMPAIGNS

SunTrust and First Union have spent heavily to lure investors in the increasingly bitter proxy fight. The war of words has escalated most dramatically in nasty newspaper ads.

A full-page ad in the Orlando Sentinel placed by First Union earlier this week announced in bold type that "SunTrust is rooted in the past . . . We believe you should look at the future when evaluating the benefits of a Wachovia/First Union merger.''

SunTrust countered Friday in an ad that screamed, "Five more reasons you don't want to own First Union stock." It was illustrated with a chart showing improvements in SunTrust's stock and earnings and declines at First Union.

The very public campaigns are similar to an election, said Lawrence Rand, a senior partner at Kekst & Co., a communications consultant in New York.

"You have two bidders for the same asset. This is literally an election campaign, and the voters are the shareholder," Rand said.

Other experts were unconvinced of the benefits of such politicking.

Mark Johnston, a marketing professor at Rollins College, said newspaper ads were among the "least effective" tools for communicating with shareholders. The ads serve the dual purpose of also communicating with customers of the banks.

NASTINESS CARRIES RISK

Yet the growing negativity could alienate customers. "You can have a backlash," Johnston said.

Industry analysts were reluctant to place bets on which company might be victorious in its bid for Wachovia -- though most acknowledged that SunTrust was in the more difficult position.

"I think it is impossible to predict at this point how that will turn out," said David West, a banking analyst at Davenport & Co. in Richmond, Va. ". . . It is a series of question marks. It is not going to be easy for SunTrust."